As a very wise lumberman once said “we’re not in the prediction business”. There are good reasons not to be in the prediction business, both for you and for me – there are just too many factors outside of our control to be able to accurately predict which way commodity lumber and panel prices may go. However, I wanted you to be aware of some recent trends and concerns. My warning message to you as we head into 2014 is that there are more key factors moving this year that could create the conditions for wilder price swings than “normal”.
In 2013, demand for lumber spiked upward and mills were unwilling (or unable) to quickly re-start mothballed facilities or otherwise significantly increase production. As the economic rules of supply/demand dictate, prices have climbed quite a bit over the past year. In 2014, we are all hearing bullish predictions on housing starts, and there is the other factor of lumber exports (to China and elsewhere). These could continue to push prices higher. However, producers who are enjoying these higher prices will start opening up new production facilities to make more this year. Depending on the timing of these new openings, they could balance out supply and demand better and thus stabilize or lower prices, or if supply and demand keep gyrating – lumber and panels could be subject to significant price swings.
So What Should You Do? First of all, this letter is a reminder to you that unlike most of your other budget lines for your homes, structural framing lumber is a pure commodity that is always changing. Please check with us each time you are finalizing your budgets to make sure the market has not changed substantially since your last house. We want you to be able to have those conversations with your client during budget phase, not when the lumber’s nailed up and you are staring at a lumber bill that exceeds your budget.
Please Note: If you absolutely have to lock in lumber prices on a large project for a long period of time (6 – 12 months), we have some new tools with LMC (our awesome lumber buying co-op) that may be able to help. These include hedging strategies (lumber futures) and forward pricing programs. I’ll be happy to discuss these with you in detail, but we need as much advance notice of your upcoming large projects as possible for these strategies to work well.
Secondly, remember that lumber take-offs and estimates are still just estimates. Since the folks managing the jobsite and overseeing the framers are the only ones that really know and can control the amount of lumber going into your homes, they must be involved with the estimating process for it to be any good. It is always recommended that you add 10-15% for unexpected changes and for your own peace of mind. Third, if your lumber estimates are more than a few weeks old, that’s too old! At Davis-Hawn, we re-price our lumber at least every month based on the then-current replacement costs for lumber and panels. If the market gets really crazy, we may have to re-price more frequently than that. So if you have a month-old estimate, it’s out of date. Please ask us to re-price the estimate for you as you get close to framing stage. We are happy to do this for you so that you have current prices in your hands.
We will work very hard as this year goes forward to inform you about movements in the lumber markets. With LMC, we believe we are well-positioned to offer you very competitive lumber prices in 2014. With some new lumber contracts that we have been able to negotiate, I am also excited about improvements in the quality of material that we will be able to consistently offer this year. With over 150 buyers on our LMC team, they are a wonderful source of industry knowledge and trends that we can put to work for you.
We are excited about the New Year and getting to work with you and serve you for all your framing lumber and architectural millwork needs in 2014. Please do not hesitate to call if you have any questions or if I can help you in any way. Thanks for the opportunity!
Build to Last,
Dave Reichert & your Davis-Hawn Team